Posts by dkelley

The Goldilocks Economy and Bear Markets

Sorry for the pun (hopefully you have heard of The Story of Goldilocks and the Three Bears), but as we get near year-end it seemed opportune to discuss the current market sentiment and our future outlook. The U.S. economy is currently in a sweet spot, or a Goldilocks effect, of not being too hot to spur rapid inflation but not too cold to cause a recession.  A bear market, loosely defined as a drop of over 20%, and a recession, two consecutive quarters of negative GDP growth, seem a long way off. There are a few factors that warrant monitoring: Loose Fiscal Policy – U.S. GDP in a range of 2-3% has historically been the sweet spot of accommodative monetary policy and low inflation.  An overextension of fiscal stimulus may push the economy too fast forcing the Fed to tighten their policy.  The ensuing run in inflation would lead to tightening in the monetary policy regime, often a key factor leading up to a recession. Black Swans – Unforeseeable events such as geopolitical tensions do exist but beyond a short-term negative reaction the market tends to bounce back rather swiftly. The current market environment consists of historically low interest rates, stable oil prices, 10-year highs in global manufacturing indices, low unemployment, and the absence of a bubble within the financial system. Given these views, our belief is the likelihood of a recession or a bear market is very low over the next year.  Any pullbacks in the market can be seen as an opportunity to add equity exposure. Risks Extensive fiscal stimulus could lead to the U.S. economy overheating High impact; low probability Continued political uncertainty surrounding the year-end fiscal cliff High impact; low probability Escalating tensions with North Korea High impact; low probability China suffers a prolonged economic recession High Impact; medium probability Investment Themes Stocks continue to look more attractive over fixed income given strong earnings growth and slowly rising rates Credit looks more attractive than Treasuries, but a diversified approach to investing in fixed income is important given Fed tightening International equities are favored over domestic equities given stronger growth prospects abroad and favorable currency returns Written by:  Antonio Belmonte, CFA *These are the opinions of Antonio Belmonte and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  Past performance is no guarantee of future results.  Diversification and asset allocation strategies do not assure profit or protect against...

Read More

College Planning 101

The dreaded Free Application for Federal Student Aid will be available October 1st of this year and should be easier to complete because you can use 2015 tax returns and not have to do any updates in the spring after filing your 2016 returns.  The following link summarizes the changes and gives some tips on obtaining the most aid possible. http://money.cnn.com/2016/09/25/pf/college/fafsa-application-changes/    But for those people who are new parents or still have children younger than college age there is still the daunting question of “How will I pay for college”.  As is the case with all long term goals, the earlier you start saving, the better your account balance should look over time.  This is due to the power of compounding interest.  If you start to save for college from the time your children are born, separating those accounts from all other funds, you will have at least part of the balance covered. There are many strategies out there, most focus on some ratio of parental savings, financial aid, current income and in some cases, help from family.  It is impossible to know what a newborn child will want to do when they are 18 years old: Will they want to go to a 4 or 2 year school? Public or private?  Trade school? Travel the world?  So what are the best steps for a parent to take now? Fund your retirement accounts first. Students can get loans for education, there are no “retirement loans” available at this point! Save money in college savings accounts. The money will grow tax deferred and can be withdrawn tax free if used for educational purposes.  The funds can also be transferred among family members for educational purposes if necessary. Save money in Roth IRA accounts in the parent’s names. Any contributions into the account can be withdrawn tax and penalty free if used for education and the account is not included in assets on the FAFSA form.   http://www.marketwatch.com/story/3-reasons-to-use-a-roth-ira-to-save-for-college-2015-03-25 Stress academics over athletics for scholarship purposes. Yes, there are plenty of athletes with full scholarships at the larger schools, but many more kids get grants and scholarships for academic achievement.  Volunteer hours can lead to extra money as well. Most importantly, don’t give up hope that your child will not be able to afford college or will be saddled with huge loans. Make smart economic choices about the college they choose and discuss the finances of college with your child early in high school. We have software available that can help you plot your course for the best possible outcome for you and your family. Cheryl Sternasty,...

Read More

You are the parent? So What?

The applications are in, standardized tests are complete and a college decision has been made.  Now all there is to do is outfit the dorm room and drop the kids off, right?  Maybe not.  A recent visit to an attorney’s office to update our estate documents opened our eyes to something that we hadn’t thought of before. Consider a horrible, but not unthinkable situation:  Your adult child is no longer living in your home. You get a call from a roommate or friend saying that there has been a medical emergency and your child is in the hospital.  Your first instinct is to call or rush to the hospital to find out what is happening and…you are denied access to any information.  What happened? HIPPA rules prohibit you from having the right to obtain medical information on your adult child, even if you are paying for their health insurance and they are covered by your plan.  It is up to the medical provider to disclose information to family members if they feel it is in the patient’s best interest, but it’s not a requirement. There are 3 pieces of documentation that you should consider putting in place for your adult children: A HIPAA authorization, Medical Power of Attorney and a Durable Power of Attorney.  Each form has a specific purpose that can best be explained by a trusted attorney. A brief description of each, along with links to the sources is below: http://www.consumerreports.org/health/help-your-college-age-child-in-a-medical-emergency/ http://www.forbes.com/sites/deborahljacobs/2014/08/15/two-documents-every-18-year-old-should-sign/#4d75a6d6fefd HIPAA authorization A signed HIPAA authorization is like a permission slip. It permits health-care providers to disclose your health information to anyone you specify. A stand-alone HIPAA authorization (not incorporated into a broader legal document) does not have to be notarized or witnessed. They can stipulate not to disclose information about sex, drugs, mental health, or other details they might want to keep private. Medical power of attorney/Health care proxy In signing a medical POA you appoint an “agent” to make medical decisions on your behalf in case you are incapacitated and cannot make such decisions for yourself. Each state has different laws governing medical POA and, therefore, different legal forms. In many states, the HIPAA authorization is rolled into the standard medical POA form. Durable power of attorney As an additional step, young-adult children might consider appointing a durable power of attorney, enabling a parent or other designated agent to take care of business on the student’s behalf. If the student were to become incapacitated or if the student were studying abroad, the durable power of attorney would be able to, for example, sign tax returns, access bank accounts, and pay bills. Cheryl Sternasty,...

Read More

Teach Your Children Well

Several of the people in our office have college-age children as do our clients, so conversations around topics to prepare us for when our children enter the work force full-time occur frequently. In general, we find that the young people want to be independent and are willing to learn what is necessary to make informed financial decisions. The area that recent graduates have the most questions about is 401ks and other retirement plans: what they are, how they work, what a company match is and how much they should save?  Our recommendation is generally to contribute enough to receive the full match, because why forgo free money?  That leads to a discussion of Roth vs. Traditional contributions.  The appropriate choice will depend on the income tax situation, and the answer may be 100% Roth, 100% Traditional or some combination of both. Next, a discussion about budgeting.  There are several online tools available to aid in the budgeting process. We have one that guides our clients step by step, and can aggregate all of their financial accounts together so they can be seen in one spot, and therefore, more easily tracked.  It also has several informational videos for young people to learn the basics of personal finance. What if their compensation package included a signing bonus?  What is the best use for that money?  Pay down student loans or save it for an emergency fund? Use it to decorate the new apartment?  Buy a new wardrobe in honor of joining the work force? Budgeting can lead to a discussion of debt.  There is a widely used rule of thumb that student loans shouldn’t total more than your expected first year’s salary.  This rule acknowledges that those students moving into a higher-paying field can afford to take on more debt, because they should have the wherewithal to pay it back. Our suggestion is often to set aside enough to cover at least 6 months of expenses in case of job loss or other unforeseen emergency.  They can add the student loan payments to the budget and start chipping away at it monthly.  If they apply the full amount to student loans they would lower the balance, but what would they do in case of an emergency or financial setback without a “cushion”? While many young people rely on the internet to provide them with advice on virtually everything, it makes sense to talk to an understanding professional to get those initial questions answered.  Opening up a line of communication can be valuable down the road as careers progress and issues become more complicated.  Our advisors welcome the opportunity to counsel the children of our clients.  We can provide basic information and online tools to help recent graduates navigate financial decisions surrounding entry into the work force, repaying student loan debt, budgeting and preparing for a successful adult life. by Cheryl Sternasty,...

Read More

Kids, Retirement and a Sandwich?

Pardon me? The Sandwich Generation has been defined as the group of adults in their 40s and 50s in the US that has a parent over age 65 and who are financially supporting at least one child. But wait, kids are supposed to move out and parents can take care of themselves, right? This phenomenon is occurring because while many baby boomers are reaching retirement age, many young people in recent years are “boomerang” children who continue to live with their parents after graduating from high school or college. So what’s the big deal? Not surprisingly, the health of those of us getting “sandwiched” is suffering.  We are more stressed and pressed for time.  We feel guilty because it seems that someone is always getting shortchanged, whether it’s our kids, our parents, our spouses, our employers or ourselves.  We have trouble sleeping because of anxiety and depression.  We worry about how we can keep supporting our loved ones before it starts to impact our own retirement lifestyle, and the cycle continues. Is there anything we can do? In the words of flight attendants everywhere “Secure your own oxygen mask first!”. But how?  Like the old commercial says “Calgon, take me away!” is often our first response.  But there are strategies to help us climb out of the bubble bath and face the world.  Dealing with the issues before reaching a crisis point is important.  Ask yourself how YOU feel about elder care and what role you would like to play in the care of your loved ones. Some of us are suited to the day to day duties of caregiving while others are more comfortable helping from behind the scenes, paying bills, managing finances, etc. The Talk Now for the hard part:  “The Talk”.  Look for clues that the time is right.  Maybe you are doing more basic home repairs for your loved ones, or providing transport, or they are including you in meetings with tax, investment or legal professionals. Include siblings if possible and realize that you might have to broach the subject more than once.  Be sure to focus on their wishes for later life, not death or inheritance.  Including a trusted, outside advisor can be helpful  because they can take the emotion out of the situation and help everyone see clearly. Phew, I’m glad that’s over, Now what? Now that expectations are clear, you can enlist the help of professionals like financial advisors, attorneys or accountants to get any necessary documentation in place and handle the business end of things. Your goal is a flexible plan that everyone involved can agree upon.  Stay healthy, share duties and be honest with your immediate family about the situation, and cherish the time you have with your loved ones. by Cheryl Sternasty...

Read More